Q3 2023 Avis Budget Group Inc Earnings Call
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Good day, everyone and welcome to today's Avis budget Group third quarter 2023 conference call.
At this time all participants are in a listen only mode. Later, you'll have an opportunity to ask questions. During the question and answer session.
Please note. This call is being recorded and you May Register to ask a question at any time by pressing star one on your telephone keypad.
It is now my pleasure to turn today's call over to David Calabria, Treasurer, and senior Vice President of corporate Finance.
Good morning, everyone and thank you for joining us on the call with me a joke for our <unk>, Our Chief Executive Officer, and Brian Choi, Our Chief Financial Officer.
Before we begin I would like to remind everyone that we will be discussing forward looking information, including potential future financial performance, which is subject to risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.
Such risks assumptions uncertainties and other factors identified in our earnings release, another periodic filings with the I C C as well as the Investor Relations section of my website.
Accordingly forward looking statements should not be relied upon as a prediction of actual results and any or all of our forward looking statements may prove to be an accurate and we can make no guarantees about our future performance we undertake no.
Vacation to update it or revise are forward looking statements on.
On this call we will discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website for how we define these measures and reconciliation to the closest comparable GAAP measures.
That I'd like to turn the call over to Jeff.
Thank you David Good morning, everyone and thank you for joining us today.
Yesterday, we reported a third quarter results, which celeb at a record quarterly revenue, a 3.6 billion and adjusted EBITDA, Although the $900 million. We all went into this quarter understanding that certain market dynamics of the third quarter of 2022 would not be tailwinds. This year. However, our team was able to.
Remain focused on cost discipline, while delivering on record customer demand, which produce earning results that are incredibly proud.
I'd like to thank all our employees across the world contributing to this achievement and demonstrating operational excellence throughout the year.
For the past few quarters, we pointed out normal demand seasonality has returned to our industry as I see it in our last call. The second quarter is traditionally a transitional period into the summer peak and that showed this quarter and the Americas with the summer being the busiest on record with strong leisure activity in July having the mole.
Cause on rent and company history, while representing the largest demand in the choir, then sequentially declining into September as it normally does Ah summer traveled diminishes and schools reopen.
Our ability to accurately forecast demand allowed us to yield appropriately to sequentially increase our P D and diminish the year over year declines versus the previous quarter.
However, on the international side, you're forced to navigate a more unpredictable market environment. This quarter, that's a higher than expected inbound demand, but great pressures on the enter your business will get more into the details on that later in the call before I do let me review the key takeaways of the quarter or America's segment.
On our last call I said the summer of 2023 would be one for the record books in the Americas segment did not disappoint.
We saw a record rental days record transactions and record revenue.
What a highlighting robust traveled demand rappeled days, this quarter, where seven per cent higher year over year and more impressively that was on top of a rental day record being up 60% last third quarter.
As long as I'm talking about year over year stats I wanted to include we were at 14% over 2019, which is our last full year pre pandemic activity.
If you look quarter to quarter volume increase year over year, there's more than twice as large as the first two quarters, which are 3% and three per cent respectively.
This does not reflect the shift in strategy in our part but is rather an outcome that a long corporate in partnership business, we've signed over the past years bearing fruit.
We saw a sizeable change in demand as we started this summer season as customers spot closer in with a velocity never foreseen as travel as Pete and extremely robust we.
We saw demand in both traditional outdoor environments like beaches and mountains with tremendous growth of inbound customers and different than prior year more travel to the traditional cities, which is similar to what we saw a pre COVID-19 trusts at a much higher level.
And the man has not stopped through October which looks to be the busiest October on record with solid midweek commercial demand coupled with leisure activity that supports the weekends.
Tobar traditionally has the best mix of commercial as company stock traveling after summer and leisure inflammation is full getaways become prominent.
The weather conditions are great for rentals related to foliage football and outdoor activities all support increased leisure activity.
Moving onto our P. D. There are several ways to analyze the results of this quarter pricing. The America's was down 5% in the third quarter of 2023 versus the third quarter of 2022 and up 3% sequentially, which was in line with our expectations.
If you recall last year pricing from the second to the third quarter was largely relatively flat due to coming out of omicron and supply chain challenges surrounding semiconductor vehicle parts shortages.
When it comes to pricing, it's worth noting three things.
One we all knew that the supply and demand imbalance industry saw the last two summers would not be repeated in 2023, two the year over year decline in our P. D. One from 8% in the second quarter to five per cent.
We were able to achieve a greater level sequential art P. D growth in the second quarter to the third quarter of 2022.
All three of these notes to pick the pricing environment that is more favorable than the absolute year over year growth to suggest.
However, perhaps the most encouraging thing we're seeing around pricing environment is best reflected in another metric, we follow which is quarterly R. P D versus comparable or P. D. In 2019.
For example, the R. P D. In the fourth quarter of 2022 was 31 per cent higher than the R. P. D. In the fourth quarter of 2019 and.
In the first quarter of 2023, it was 33 per cent higher than the first quarter of 2019.
The second quarter of 2023 was again 33 per cent higher in the second quarter of 2019.
And lastly in this quarter R. P. D was 29% higher than the third quarter of 2019, which we believe would have been north of 30% if not by the travel disruption in our highest R. P. D region of Hawaii due to the tragic effects the Maui fires.
We interpret this as a sign that the industry supply and demand dynamics are well matched and resulting in RP D. That's roughly 30 per cent higher than pre pandemic levels.
Is this the new normal maybe so but it's apparent they will get back to a more normal ice seasonal trends just had a much higher level.
With regards to operating cost the team was met with significant challenges cross several market dynamics.
Be able to depreciation which was a huge fan and the third quarter of 2022 started to normalize when we were faced with a 350 million dollar headwind this quarter.
The interest rate environment continued decline this quarter on a larger fleet base with higher cap costs, resulting in another 80 million vehicle interest cost versus the third quarter of 2022.
Utilization, while strong was also negatively impacted due to higher than expected recalls and those malley wildfires.
However, despite these challenges are teams continue to demonstrate stringent discipline, while servicing a record number of customers and investing in our brand.
Although rental days grew by 7% and we continued on nationwide plan on us marketing campaign direct Opex and SG&A in the Americas grew by only 4%.
This operating leverage we created by reducing the costs in our control helped us overcome those costs out of all control and we're able to deliver a fourth consecutive quarter with America's adjusted EBITDA margins over 25%.
On that note, let me provide a few additional income statement results in the quarter and the Americas revenue increased over 30 million year over year comprised of record rental the growth of 7% offset by our P. D declines a 5% <unk>.
America's adjusted EBITDA during the same period decreased by roughly $445 million to the aforementioned headwinds from vehicle depreciation vehicle interest rate.
These factors will continue to be a headwind throughout the balance of the year, but as we did this quarter. We will continue to mitigate those costs within our control and demonstrate operating leverage that translates into adjusted EBITDA and Marge Entertainment.
From what we currently see as I mentioned earlier traveled demand remains healthy as we experienced the busy busiest October on record book.
Bookings for the out of months a robust as we look at reservation bills for the Thanksgiving and Christmas leisure periods. In summary demand continues to be strong and price will adjust seasonally as it normally does from the third to the fourth quarter.
That's always we will continue to manage with operational excellence and I'm confident that our team will show what it means in the fourth quarter and beyond.
Now, let's shift gears to international which is more of a complicated story to one pack this quarter on.
On our last call I detailed the different business segments, we address in international which is made up domestic cross border and international impact.
Typically demand patterns all three of these segments are correlated adjusting for predictable mix shifts due to normal seasonality.
This quarter. However, we saw significant strength and the international inbound segment, primarily from U S customers traveling to Europe.
But less apparent with domestic and cross border business. The combination of these two factors, resulting in a blended rental day growth of one per cent of the region.
Significantly lower than the guidance of high single digit rental date growth, we gave on our last earnings Paul.
I'd like to provide a bit of color on what we saw in our latest thoughts going forward.
Prior to the third quarter of 2023 are international segments, one nine consecutive quarters of year over year revenue growth.
Despite that growth in the second quarter of 2023, our international rental days is still down 23% versus the second quarter of 2019.
<unk> was that while the post recovery in Europe started later than the Americas would eventually follow a similar trajectory with continued recovery in the days billing throughout 2023, and it's a 2024.
While we still believe this is the overall macro cost the industry will take.
This sort of shows that won't be a straight line.
Europe is like more credit than rental car industry, we saw a small domestic operators still sweet inventory and what we all soon will be a record summer. However.
However, what we saw in the third quarter is unprecedented travel disruptions with labor strikes in flight cancellations several disruptions in protests in key markets and perhaps more importantly, dour economic environment with high energy prices surging borrowing costs and waiting export demand all negatively impacting European.
Confidence and spending.
Given that Avis budget is a globally recognise brand while the home market being in the U S. We've benefited from the boost in international inbound travellers. However.
However, the domestic across quite a segment saw significantly weaker demand.
Instead of chasing volume to meet previously communicated renovate targets, we quickly pivoted and made a conscious decision to forgo low R. P. D business. This season and concentrate on those transactions that met our return on invested capital hurdles.
In an environment, where monthly per unit costs are up 27% and multi interest costs are up a multiple of that.
Felt the only prudent decision was to remain disciplined involuntary pass on a low margin business.
And this is reflected in our results.
Yes rental days were only up 1% year over year, but we protected R. P D, which was up 4% sequentially focused on cost mitigation and deliberate nearly $200 million of adjusted EBITDA at a 24% margin the second highest quarterly adjusted EBITDA and our international segments history.
Our goal is to continue to optimize margin through strategic pricing stringent cost mitigation and fleets in line with demand.
We continue to believe that substantial opportunity for recovery in this region exist and will focus on capturing our share of it going forward.
Moving on to fleet, whereas usual will focus more on the America segment on our last call I said that while we saw a stronger than expected used car market in the beginning of the year. We did not expect gains at those levels to continue or the balance of the year.
Residual values for used cars moderated from the second quarter and throughout the third quarter.
Still elevated over pre pandemic levels and there continues to be strong demand for used cars of our type <unk>.
Used car inventory is still down in the price point of these cars to be more than 20000 lower than a new car, which presents significant value for consumers we.
We have said that we expected our gains to continue to normalize and a monthly depreciation costs to continue towards our gross depreciation of roughly $300 per vehicle.
This will happen by next quarter and we're seeing it reflected in the October results.
The lower gains on sale this quarter versus the second quarter of 2023 combined with the additional new vehicles, we inflated increased depreciation costs in the Americas from $168 per vehicle per month in the second quarter of 2023 $219 per vehicle per month in the third quarter of 2023.
We expect this trend to continue throughout the fourth quarter, where a monthly net depreciation per vehicle continues to converge with a monthly straight line depreciation roughly $300 per vehicle.
Let's shift gears now to monthly vehicle interest in the Americas monthly per unit interest costs grew from $62 per vehicle in the third quarter of 2022.
$105 per vehicle in the third quarter of 2023, an increase of 70%.
On a fleet base of roughly 550000 vehicles that equates to over $70 million.
Of cash outflow from interest expense.
I've said, it before and I'll say, it again in an environment, where ah or input costs are rising.
Cost of the vehicles and the cost of finance, we must be hyper vigilant and matching our vehicle supply just under demand, we'd rather run out of the instrumental vehicle that have an unutilized vehicle on or what.
You'll see us put this rhetoric practices with the fleet in the fourth quarter to sequentially Bill clients consistent with what we have historically done and pre pandemic years from the third to the fourth floor.
Lastly, with regards to vehicle availability in previous labor disruptions deliveries are still on track parts are still available and we are progressing with our talks about future buys currently a model year 202024 bytes are largely complete we have a great relationship where are we in partners and I want to thank them for their <unk>.
For your support.
Before I leave fleet, let me comment on <unk>.
As you know our strategy is centered around ensuring that our infrastructure is developed service vehicles of this type in a manner that.
With our operational logistics.
You've been in investing in the most capabilities and while we currently have all necessary your sources to appropriately service. Our electric today, we will continue to build already the infrastructure resources across our footprint commensurate with our anticipated growth.
This provides us the ability to react given changes in demand curve we.
We have ensured we have <unk> of different makes and.
And models from a majority of all manufacturers charged with customer demand and further insulates us from cost pressures associated with three calls and other maintenance related activities.
We manage our <unk> similar to how we manage our regular gas bars, focusing on our airport activity with gives us a best margin outcome, while we continue to have supply slightly under at the man.
This ensures per unit economic stay on line.
While a demand for reviews have improved considerably will continue to monitor our supply and ensure that it keeps up with this ever changing environment.
Let's turn towards technology, and how it's an integral part of everything we do our proprietary demand flea pricing system continues to allow us to optimize price and volume by forecasting volume down at the store level, both closing in months out and pricing our vehicles and an individual vehicle level, while optimizing utilization contribution.
Margin this.
This technology, along with our revenue management team and operational field experience continues to generate a significant advantage at maintaining our supply demand and pricing process.
We have made technological enhancements in our maintenance and repair process is generating efficiencies in operating expenses. These enhancements provide our technicians were fast the visibility of data analytics to determine body damage a salvage decisions as well as ensuring we optimize our spend with outside service providers.
We continue to see improvements in our field level of productivity due to strengthening our workforce planning tool, we've been able to realize this improvement in our field direct operating expenses.
Continuation of technology enhancements allow us to keep our costs inside of increasing demand and help margin profitability.
As you know we have implemented vehicle telematics in our fleet, which provides actual fuel readings and helps insulate us from rising gas prices as well as surprised.
Provide improved asset control.
On the customer experience sight, we continue to promote a seamless experience from our customers are Avis quick pass offering now with a majority of our airports enables our customers select from a choice of vehicles on their phone proceed directly to that car are we in exchange that car, if they like and drive to the exit gate utilizing a QR code for an automated.
Exit.
On return customers, who closed out their rental on their own utilizing our connected car technologies. Similarly, a budget best break choice as an expedited pick up process that allows you to select you a vehicle right from your mobile device by taking a picture of the vehicles license plate and proceed through an automated.
<unk>, thus expediting your rental checkup on.
On return connected car technology allows you to checking automatically receive a receipt within minutes. These technologies have improved our customer experience and enhanced our overall.
Yes.
Before I conclude I would like to make an engine of our press release last night announcing changes to our management structure and dynamics Bryan fight or CFO will be transitioning to a newly developed role in our company EVP and cheat transformation officer I asked Brian to step out of this current CFO role.
And take on this new challenge designed to help create sustainable adjusted EBITDA in the years to come.
Bryan Bryan has experience looking at our company will can the outside during his days at his investor and over the past three years, helping us managing from the inside and his current role CFO.
He has a unique ability to analyze and digest data and turn it into a practical format like no other and this will benefit our business as we look to grow are profitable revenue, while creating efficiency in our cost lines by working with stakeholders. Both in our headquarters in our field operations all designed to improve our overall performance.
Is March will move from our current rule of Pvp and head of the Americas fulfilled Brian's role is CFO is.
<unk> prior experience is the P. P. A tax chief accounting officer, and CFO of the Americas now combined with the operational experience. She gained over the past four years position her extremely well and a new role as global CFO.
He has been instrumental in delivering the record setting performance in the Americas over the last three years, you'll get to know is a more formally in the coming months.
Adding and David collaborator with his experience in accounting Investor Relations and the terrific work used on in Treasury make this formidable team.
In addition, we announced some changes on the board level as well for an auto he's the executive chairman since 2020 will transition from his current role and remain a member of our board starting in May of next year.
<unk> has been instrument and the company's performance, helping us navigate through the pandemic and transform it that accompany we are today.
His insights and partnerships with very much needed and help guide our future and I look forward to continuing to work with him as a member of our board <unk> will move from the Vice chairman role to the chairman roles starting in May as well check deep the president of Srs has been with our board since 2018 and like Bernardo has been a large part.
Our success and I look forward to working with him and a greater capacity in the most of the company.
We are extremely fortunate to have terrific talent on our team and a gifted board to help align our strategies.
So let me conclude.
Another great quarter with record sending revenue in the Americas, and the strongest summit ever recorded with price improving from the second quarter to the third quarter as we noted on our last call.
International continues to drive towards Marg entertainment with profitable revenue and cost efficiencies.
The fourth quarter started off strong with good commercial and we should demand and record setting volume in the U S and advanced reservation surrounding Thanksgiving and the holiday seasons are strong.
Price will moderate and adjust seasonally is done historically.
As we come up our peak, we will continue to deeply at our vehicles to keep them in line with demand our.
Our team is focused and driven to once again deliver another strong quarter to finish out the year.
With that let me turn it over to Brian to go through our liquidity in our Apple.
Thank you Joe for the kind words, an opportunity to take on this new role and beyond excited to start but first let me do it cfo's too.
And discuss our liquidity their turnout work.
Comments today will focus on our adjusted results, which are reconciled from our gap numbers in our press release.
I'd like to start off by addressing my favorite topic capital allocation.
<unk> took a balanced approach free cash flow deployment in the quarter by addressing both fleet that and return to shareholders. We voluntarily contributed over $100 million to our vehicle programs like forgoing the refinancing of higher cost conscious of our <unk> as they can do and funded those conscious with cash on hand instead.
With interest costs in the high single digits now for our CND conscious of our avs, you'll continue to see his deleveraging here going forward.
We also deployed nearly $500 million into repurchasing $2 $2 million of our shares outstanding this quarter give.
Given that we strongly believe that our current share prices does not reflect the fair value of our transformed company. We will continue to aggressively buyback shares until that gap closes and this will be reflected in the cash flow usage of our fourth quarter.
This summer has filled out where chest and we have full confidence that substantial free cash flow will continue to be generated in 2024 and beyond.
However, as we've sat on previous cause we will be nimble and opportunistic with regards to capital allocation and we'll consider all avenues of returning capital to shareholders.
We continued to find ourselves in the privileged position of being in the strongest financial standing in the history of our company.
Last 12 months adjusted EBITDA was $2.8 billion during the last nine months, we've contributed nearly $1 billion back into our vehicle programs deployed over $200 million into investments in our systems operations customer experience and evie capabilities, all while having a net leverage ratio of about 1.5.
Times.
As of September 30th we had available liquidity of approximately $1 billion with additional borrowing capacity of $1.1 billion in our ABS facilities.
Corporate debt as well ladder with over 90 per cent of our corporate debt, having maturities in 2026 or beyond and we are in compliance with all of our secured financing facilities around the world with significant had room on a maintenance covenant test as at the end of September.
Let's move on to outlook.
As you know we've made the decision as a management team to forgo giving formal annual guidance to allow ourselves the flexibility to make agile decisions as the business environment changes.
Here's some color around what we're currently seeing for the fourth quarter.
Rental demand, India matters appears to be robust and we are again expecting to fleet slightly inside of the strong demand. We're currently seeing.
We are encouraged by the strong corporate demand we saw in October and believe that will continue into late November leisure holiday season kicks 'em.
And as Joe stated the advance reservations around the holidays are strong we.
We believe this will translate to mid single digit mental K growth combined with the normal sequential seasonal decline we saw last year from three Q to four Q.
An international as we stated previously we expect to return to revenue growth with mental day growth in the low single digits and flat RPT.
Consolidated monthly per unit vehicle interest, which was $92 in GQ twenty-three will move up slightly.
Above $100 as we indicated on previous calls.
Monthly net vehicle depreciation will converge with our straight line depreciation by the fourth quarter as we expect gains on sales to be insignificant.
And while those gains will be missed the silver lining is that we're returning to a more normal environment. Both in terms of fleet and seasonal demand.
Which better enables us to do what we feel is our competitive advantage analyzing the field setting ambitious targets and executing operationally.
All of this should translate into a full year adjusted EBITDA over $2.5 billion. The second highest annual adjusted EBITDA and our company's history with that let's open it up for questions.
Thank you.
And at this time, if you would like to ask a question. Please press star one on your telephone keypad you.
You may remove yourself from the queue at any time by pressing star two and please limit yourself to one question and one follow up question. Once again that is star and want to ask a question. We will pause for just a moment to allow questions to cute.
And we have our first question from Stephanie more with Jeffries.
Hi, Good morning, this is Hans Hoffman on for Stephanie.
That's on a strong quarter and I appreciate all the color. So just set up my first question just thinking about 2024.
And it is not a whole lot of visibility on demand environment and you know right now looks like kind of vehicle plumbing costs are going up vehicle depreciation kind of getting into a more normalised level. So I guess kind of putting that aside can you talk about in terms of what's.
Kind of what the any of the control and you're sort of ability to preserve margins are indeed mitigate some of those margin pressures next year.
Hi, This is Joe I'll start off and O'brien, if you want to jump in.
So.
You are right. We are we are currently working on our business planning process. So I don't have all the details surrounding 2024 will be doing that over the next couple of months, but.
What I would want to probably say is that and I said this earlier in our in our prepared remarks, we're back to a normal seasonality. So I would anticipate that that would bring true going into next year as well and what I mean by normal seasonality.
The second quarter is bigger than the first and the third quarter is bigger than the second and the fourth quarter is somewhat in line with the second or thereabouts and the demand patterns in the pricing patterns will adjust seasonally I think that that would be a good.
Good starting point with how we would look at 2024, there is some guiding principles, however that I think about.
And if you take a look at this past summer. It was the busiest peak that we've seen and I and I going into it and I sit on the last call, but I thought this summer was going to be what is going to be big like it normally is just a larger peak because of second quarter was like a transitionary period into the summer, which was exactly what we saw in 2000.
19, right, so coming off a busy summer you would say well as demand slowed down a little bit.
I'll be going to see that going into the fourth quarter and I have to tell you October.
Like I said earlier, it's going to be the biggest October on record we didn't formalize the exact.
Metrics quite yet, but it's all indications that it will be.
So the volume did stop right demand is still strong we see strong growth in commercial and we see strong growth coming from leisure and I see that continuing going into the fourth.
Surrounding holidays.
Thanksgiving and Christmas and a good deal of fourth quarter activity. When it's all said and done surrounds Christmas and that looks pretty good.
I don't believe that that's going to stop when you get to January or February or March and I think we'll start picking up yeah, it'll just seasonally but the man should be strong and I think pricing you've seen what I said earlier very strong commit an elevated compared to 2019 and I see no reason why that why that doesn't change.
However, we have to off facing interest costs as you say in there and depreciation costs are starting to normalized one of the key reasons why I asked Brian to come out of his role is to help us monetize some of the activities that we have surrounding data and data analytics to make our team better operators I believe we have a great operational team right now.
But the way we are looking at things today is uniquely different than maybe the way we looked at him in the past and I believe that will give us an edge and keeping our direct operating costs and things of that nature more in line that Brian turned to you. Yeah. I think you've covered everything just one thing to to highlight is.
These interest cost pressures are gonna continue into next year when the cost to play to take on a new car is going to be over $100 per vehicle per month like you have to reevaluate the appropriate return on invested capital for that car.
So I think that means that we're going to be very focused on yield management next year I'm going to be <unk>.
Just on utilization and as Joe mentioned, we intend to fleet slightly below demand in order to remain disciplined around return on invested capital.
Got it that's super helpful and then just.
Appreciate kind of all the colors around sort of Europe, but they just kind of wanted to unpack it a little bit more.
So I guess, maybe just thinking about Q for have you seen sort of any easing in terms of some of the pressures on.
Domestic and sort of cross border travel or is it kind of you know the expectation that maybe just the European consumers you know, maybe a week into that and kind of you know here domestically and that maybe some of those pressures could kind of continue at the Q4 and maybe into Q1 it'd be all set a little bit by some continued shrank and sort of the international imbalance segment.
Yes.
There's a lot of geopolitical pressures over there and I think we have to be we have to react.
So I'm comfortable with where we are today I thought that the margin attainment in the third quarter was was terrific. It was the second highest we hadn't company history, and you're going to see us.
Operate that way and if things change will will deal with it and react accordingly, but our fleet is going to be in line with demand are cost basis is going to be a line that allows us produce margin, we still have an extremely strong.
What I would call an inbound demand coming out of the United States, We have terrific partners with all our airlines here in the U S and they continue to drop customers off and we will concentrate and our ability to generate.
That highly profitable business and on Europe now when we looked at it.
Compared to 2019 and in the United States, We started to overcome the COVID-19 related challenges in 2021, we thought that that was going to happen this summer, but like I said.
Bound business terrific for us piano into European business and domestic not so good so we will prepare as if.
We will prepare to operate on a more of a drop through basis and and things change we can react very quickly.
And that's what I like about our business compared to.
Where we were pre Covid, we took a lot of cost out we're able to optimize as we go.
Got it thanks.
And just a reminder that was star one if you'd.
Like to ask a question and our next question comes from Chris Rwanda.
Deutsche Bank.
And Chris Your line is now life.
Hey, guys.
Hi, Chris.
Hey, Thanks for taking questions. So congratulations on another quarter first and then my first question is really when you think about fleet for 2024 I know you said most of your your buys her already done what.
What's the kind of the macro very high level macro view that.
Kind of underpinned your your decision on sizing, there's a lot of stuff going on in the world and.
We don't know what the economics look like next year. So you just talk about kind of would you say you're entering next year with a more cautious view on overall fleet size than you than you did in maybe in view of that some apparent market share gains you've had that might make you want to go bigger on fleet. Thanks.
So.
The way we operate Christian you've.
Covered us for for a long while now our peak fleet is in the summer and we do we do everything we can to make sure that our fleet is in line with demand going into summer anticipating the strong or anticipating the strongest quarter of our of our year and I think we did a really good job about that this year, we we had our fleet size.
Where we thought it would be.
Fortunately, we had those mallory wildfires, which.
When those occurred.
They occurred.
Without any notice obviously and as tragic as they were for the for the people in the communities in Maui. They had a very large effect on our overall utilization in our fleet size people just stopped going not just about everywhere else. It was kind of like.
What's happened during Covid very quickly.
But what normally happens every year is that when we come off the peak, we started to the fleet and we deplete rapidly you saw that last year as well it came out of the third quarter Pete with the most cars we have in our in our business and we start.
Taking cars out in a rapid fashion and we have we have done that in the month.
It's September and certainly October and will continue to do that so we get the fleet size down to what we believe is a normal operating size to go into the first quarter.
Predominantly the winter months here in the United States.
The key word for us for next year is flexibility over the years, we've proven that we can even during the COVID-19 years, we've proven that we can get cars and fleet up as demand increases or we could take cars out quickly to ensure that we are in line with our demand I think if you look historically at our company you will see that.
We do that we have great experience people, we have technology.
DSP that gives us some insights into what's going to happen by certain cities and so we will we will continue to do that.
Going into next year.
With with uncertainty surround these geopolitical environments and things of that nature, we will be prudent and if demand goes up bigger than we think we will react and if it doesn't we will keep our fleets in line I think with the cost of with the interest cost that we're seeing now and the end of depreciation more normalizing I think that's the most prudent way to attack.
Wash strategy surrounding fleet.
Chris just add to that on the market share <unk> I just want to reiterate as we've had in the past that we don't solve to maximize market share here, we solved to maximize long term sustainable EBITDA I think I was shown this quarter as well, where we grew 7.5% and rental days in the Americas, that's a well below the 11% TSA volumes dead.
Year over year in the third quarter, you'll continue to see is like I said free slightly below demand.
Okay I appreciate that thanks, guys. It as a quick follow up I think we're pretty impressed if you're you're Doa margin performance this quarter again.
You are still growing volume or appear to be still growing transaction days in the in the U S.
We normally think about.
<unk> price is flowing through to the bottom line and less so on on volume given the variable cost, but it seems like have you reached a point where.
Whether it's utilization level, where the.
The incremental transactions or perhaps more profitable at the unit level, even if pricing is slightly lower if that makes sense.
This part of that part of that is that is absolutely true crescive as.
There are certain segments, our business that allow us to have a better price opportunity than others for example, inbound business.
It comes with.
Especially further out it comes with a higher price and a lot of ancillary.
On revenue that that comes with that type of business.
Some leisure demand, especially on our large company.
Bigger brand Avis, which actually we saw <unk> grow at a much significant level more significant level than any of our other brands this quarter and that comes with a higher price point, so to put to keep fleet at that brand or things of that nature that certainly has a benefit on what we see as far as price as far as you know.
Writing dynamics we've.
We utilize technology and a differentiated way to look at how we manage our our cost lights and as I said earlier.
Brian was running as a CFO and a part time job was to kind of look at how we how we can better improve our some of our direct operating costs and that's why I moved them out into this world because I think that there is a future and our ability to keep.
Not going that down a little bit but over the past couple of years or efficiencies has improved.
Productivity is and.
In a field, especially with our labor in the field is better than it was in 2019 and we'd be able to improve our NPS. So I think overall yeah. There are segments of business that promote the best right in the best profitable outcome as well as dynamics associated with how we manage our direct operating in S. G.
Hey.
Okay very helpful. Thanks, Thanks, Joe.
Yep.
And we have our next question from Ryan Brinkman with J P. Morgan.
Good morning. Thank you for taking my question and thanks for the comments on capital allocation, including fleet pay down debt Paydown repurchases. It seems the allocation can be there in three Q like you indicated it would maybe just as a follow up you'll give them the changes and used vehicle prices and I guess billion dollars now of these voluntary contributions near vehicle probe.
In the first nine months of the year I just wanted to check in on like what percent equity you have across your programs or in your biggest vehicle programs currently versus the amount that you're required to maintain firstly.
Firstly to understand like how much cash you could potentially take out if you wanted to for repurchases or anything else and then I can lead to maybe understand I guess, Conversely, like how much of a cushion there might be.
Be there now in terms of you know.
What percentage decline and used car prices. It would take before you might be required to put more cash into the programs, assuming similar fleet size et cetera.
Sure right I'll take I'll take that question.
In terms of the equity question that we have.
You can take a look at our press release we.
We listed out every quarter, what our vehicle assets are and what our liabilities are under our vehicle programming subtracted too that's a good proxy for.
They are both at equity that we've database equity we have in our fleet plus the additional contributions that we've made in as as you can see that ratio has been growing.
Favor of David.
The assets and that reflects kind of voluntary contributions that we've made to that program.
And before that we can what are.
Advanced rates are that's remained fairly consistent so we can go in the high eighties in a lot of and a lot of markets. We've chosen not to do that like I said.
Are there down we go on our on our refinancing sort of see consciousness <unk> those are becoming.
Close to 10 per cent now, 8%, 9% and.
And and you're kind of conceit, you'll see us continue to.
To forgo refinancing at those high rates as those turned that's come come do so we feel really good about where we are in terms of leverage ratios. There again, you can see the assets, which leave mark.
On a monthly basis here and how much higher that it has been the liabilities we have so.
You can calculate what the what the question is over there.
And in terms of in terms of capital allocation.
As I said on that preventative prepared remarks are we still believe that a shares are undervalued relative to the fundamentals around our current and future earnings trajectory.
We repurchase shares yesterday, and we still have a billion dollars remaining in a buyback authorization, but we're not going to be formulaic when it comes to capital deployment.
We evaluate the full spectrum of options from M&A capex debt repayment dividends, one time irregular and and of course share repurchases. So.
Will continue to allocate capital to those areas that best benefit all stakeholders.
Very helpful. Thank you and then just on <unk> what is the number of electric vehicles that you have globally. What are the brands there that you're most exposed to and are you thinking any differently about how quickly you might onboard E beads or what percent of your fleet you might expect them to rise to over what period of time just in light of the the lower electric.
Vehicle prices, we've seen this year and so I I assume higher depreciation and and maybe some of the direct operating cost implications too is highlighted by one of your competitors.
Yeah I'll take that.
Trying to answer it thinking about a little bit about strategy and then give you some insight to where we are as far as fleet.
We want it to be consistent and measured in our approach to <unk> and our strategy Denise centres around a few principles first thing. We wanted to do is make sure. We had an infrastructure everything we heard was that in reviews are going to be very prominent as far as manufacturing goes and obviously that changed over the last couple of.
Months, but we wanted to make sure that we had and infrastructure capable to rent. These at a utilization level, that's commensurate with our utilization levels on gas cars given the <unk>.
And it looks like we have we see a lot of.
Time for our Q&A session.
Now turn the call back over to you Joe Ferraro for any closing remarks.
Excuse me if you will please hold we will try and disconnect our presenters at this time.
Bear with me and I'll start again on the question about <unk>.
Is that fair.
So.
Like I said it answer this question I'll give you insight to where we are in a car on a level of course, but I think when you look at our our Phoebe strategy it centers around three real principles.
Wanted to be consistent and measured in our approach first thing was we need an infrastructure to support Tvs, especially at our airports and we spent the last year and a half doing just that so uncomfortable with our infrastructure is yeah, they're more airports coming online that's the grid levels increase at certain at certain cities in an airport authorities.
So we will we will continue to do that second as we want it to have cars are different makes and models.
From different.
And similar to the way we run our our gas car fleet. We believe that gives customer choice. It allows insulate us a little bit from maybe recalls other maintenance related costs and certainly of late residual value precious associated with some of the price declines we've seen in some of the some of the.
And some of the cars that are being produced.
Third.
The majority of business occurs at our airports and we wanted to make sure that we had the ability to rent cars to consumers that flying into our locations. So so we spent a good deal of time trying to organize ourselves around that demand level. It gives us the opportunity to have our best marketing outcomes on people's of that nature and it's.
A typical type of vehicle that we rent.
As far as gas cards, because that's where the lion's share about our businesses I think what I liked most about it is we have ultimate flexibility there <unk> available.
Manufacturers want itself and.
Now we are very much looking at keeping our <unk> in line with our demand as far as like the numbers you know I don't like to get into that but I will say. This if you look at the total amount of Eb's sold as comparable to the total amount of cars were well under that percentage.
Hope that helps.
But I think you know what this is it as as a situation rose I think you'll find us to be able to take advantage of that just like we would a normal car.
Sorry for the interruption on that I don't know why we disconnected I apologize for that.
It looks like we have reached the a lot of time for a Q&A session I'll now turn the call back over to Joh Ferraro for any closing remarks.
Yes.
So to recap with another quarter with solid earnings driven by the strongest summer ever recorded with great demand sequentially, improving pricing, we will continue to invest in our technology to have improved customer experience and drive enhanced efficiencies in our operations and finally I would like to say thank you to all our employees for the hard work. They put in this past year and thank you for your time.
An interest in our company.
Thank you that does conclude today's teleconference. Thank you for your participation you may now disconnect.
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